The 7 megatrends set to transform the advice ecosystem
A new report has unearthed seven key megatrends that financial advisers need to prepare for to stay ahead of the game and not be left behind.
Deloitte Access Economics’ Advice in 2030: The Big Shift report, produced in collaboration with Iress which surveyed 250 advisers, painted a portrait of what the future of the financial advice industry could look like.
According to the research, the number of advisers is estimated to only grow by 1.1 per cent per annum to reach 16,708 by 2029. Based on Deloitte’s numbers, growth from 15,819 to 16,708 is a gain of 889 advisers, representing 177 advisers each year.
While the advice industry has experienced significant changes in recent years, such as the Hayne royal commission that led to a 43 per cent reduction in adviser numbers from a peak of nearly 28,000, further change is set to occur.
“After years of industry disruption from within the sector, we identify that the next, arguably bigger and potentially more profound disruptions are likely to come from seven new external sources driven by shifts in competition, social values, technology, demographics, climate and client priorities,” the report wrote, co-authored by John O’Mahony, finance lead partner at Deloitte Access Economics, and Professor Deen Sanders.
O’Mahony encouraged advisers to ready themselves for the “big shift” that will transform the competitive landscape of the advice profession.
“Advisers can avoid being edged out in an increasingly competitive sector by adapting and perfecting their unique customer profile, business model, specialised advice capabilities and technology selection. By embracing the megatrends and mapping their practice against the current landscape, advisers can carve themselves a sustaining market position,” he said.
The report identified the following seven megatrends:
- Skyrocketing retirement demand
- Natural disasters and environmental volatility
- The new Australian dream (housing unaffordability)
- Digital delivery of everything
- Intergenerational wealth transfer – the grey tidal wave
- Riding the green wave of future investing
- Digital assets and product proliferation
Skyrocketing retirement demand
With 23 per cent of the adult population to be aged 65 and above by 2034, advice will need to be tailored in order to address the unique retirement demand challenges faced by individuals, the report detailed. This includes advice surrounding pensions, aged care, estate planning and optimising superannuation savings.
Advisers will also see heightened competition from super funds and non-relevant providers as they bolster their advice offerings. Moreover, advisers will need to balance the use of digital tools to streamline advice with preferences for face-to-face contact for older demographics.
Natural disasters and environmental volatility
“Financial advisers play a crucial role in helping investors in managing both stages: the risk management phase before natural disasters occur and the recovery phase afterwards,” the report wrote.
Clients tend to become more risk-averse after experiencing a natural disaster, reducing their investment in household stock by approximately 5 per cent and overall riskier asset investment by 3 per cent.
“While this may seem prudent in the short term, it can hinder long-term growth. Additionally, shifting towards more conservative investments may not keep pace with inflation or meet clients’ future goals.”
With this in mind, advisers will play a critical role in helping Australians, particularly those in rural and remote communities, build financial resilience following the event of a natural disaster by developing a risk-tolerant portfolio.
The new Australian dream
The “great Australian dream” of owning a home is no longer a reality for many families as housing prices rise higher, O’Mahony and Sanders described. Projections by the Grattan Institute indicate that 43 per cent of individuals aged 45–54 will likely not own their own home by 2036.
As such, this megatrend is typified by first-time investors seeking low-cost investment alternatives to housing and how advisers can bring home ownership to clients through fractional ownership arrangements or pending client financials, through private treaty with multiple buyers or public investment vehicles.
Digital delivery of everything
With the median annual fee for advice up nearly 60 per cent over the past five years from $2,510 in 2018 to $3,960 in 2023, low-cost digital advice is well-positioned to address the cost barrier preventing more Australians from seeking advice.
“The majority (76 per cent) of financial advisers agree that adapting the use of technology is not only required to meet client expectations but will help the sector remain profitable in the long run and serve a larger volume of customers.”
While the financial services sector has been identified as one of the top five industries prone to rapid disruption by generative artificial intelligence (AI), the report encouraged its adoption for productivity gains, informed decision-making and personalised client recommendations.
Intergenerational wealth transfer
Some 21 per cent of the survey respondents’ say their client base was aged between 18 and 35 years old, meaning advisers need to meet evolving client expectations across age groups in the future.
“Modern families often have intricate, multigenerational structures and dynamics, including blended families and single-parent households which may differ in their approaches to wealth and financial planning.
“Advisers will play a pivotal role in managing intergenerational conflicts and simultaneously meeting the diverse needs and priorities of stakeholders.”
Moreover, earlier initiation of intergenerational wealth transfer conversations is crucial for long-term planning.
The green wave of future investing
Deloitte’s report discovered that 74 per cent of advisers surveyed agreed that transparency in their work impacts how much their clients trust them. With 31 per cent of Australian investors actively investing based on ESG principles, advisers will need to have an array of ESG tools, including generative AI to perform ESG screening, due diligence and portfolio optimisation to support future investing decisions.
“Meeting client needs for those driven by value investing means advisers will have to engage more empathy to understand unique investment motivations. Advisers must invest in complex due diligence in these instances rather than relying on algorithmic advice recommendations.”
Digital assets and product proliferation
The last megatrend – the rise of digital assets – has seen an expansion in the landscape of Australian investment options, thanks to cryptocurrencies, exchange-traded funds (ETFs) and non-fungible tokens (NFTs).
To remain relevant, advisers must embrace these trends and develop a strategic approach. This includes actively acquiring knowledge about cryptocurrencies, blockchain technology and other emerging asset classes to effectively advise clients on their investment potential.
This also means designing investment plans that integrate digital assets alongside traditional options based on individual client risk tolerance and investment goals.
AUTHOR
Jasmine Siljic
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